Further to my story about US debt ceiling problem, I showed you that the debt ceiling has been raised many times in the history. It looks that raising the debt ceiling is a norm in the US, but why are investors worried? Let me continue the story.
Although Uncle Sam is a very powerful person, there are another two influential politicians in the country, the Democratic Party (The “D”) and the Republican Party (The “R”). If Sam wants to increase the ceiling, the “D” and the “R” must reach an agreement.
The problem is, the “D” and the “R” are two spoiled kids who have been fighting against each other for the sake of fighting since they were born.
The “D”, being the ruling party of the country now, wants a long-term solution because they have been criticized for allowing Uncle Sam’s debt piling up for the past years.
However, the “R”, who was always blaming “D” for their inability to cut the budget deficit, wants a temporary plan which lasts only for six months. So they can restart the blaming game again and probably even use it as a tool to bring “D” down. (The irony is that a big chunk of the current deficit is left by “R” when they ruled the country)
Uncle Sam is frustrated, because being so rich by borrowing so much money, he has a deep pocket that he can pay his debt due on Aug 2 anyway. Even if he runs out of cash, he can choose to halt social security payments or default on other obligations like paying its military before it defaults on its debts.
However, because this stupid politics, he can just sit there and watch this wayang show. It is even more ridiculous that the US Congress can authorise future spending but subsequently have to vote on whether to permit the necessary borrowing to fund the agreed budget deficit.
No wonder US President Obama said:
“If we don’t come to an agreement, we could lose our country’s AAA credit rating, not because we didn’t have the capacity to pay our bills – we do – but because we didn’t have a AAA political system to match our AAA credit rating”
Do the politicians care about the economic impact of this dangerous game? Obviously not! They are politicians.
Now the show is coming to the end. Tighten your seat belt.
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